The death of Detroit: Lessons from the decline of a great American city
March 18, 2013
It’s finally happened. After years of unheeded warnings the city of Detroit has gone into receivership.
For those unwilling or unable to learn from history or from the experiences of other nations, the sordid tale of Detroit, once one of America’s richest cities, is instructive. Crushed by debt which it incurred to pay for featherbedding, high salaries, lavish employee pension funds, health care costs and other boondoggles demanded by public sector unions and political apparatchiks, the once-proud motor city has simply run out of road down which to kick the can.
Detroit owes around $14.9 billion; by comparison, the total debt of all other Michigan cities combined is less than $12.8 billion. A tidy sum, true – but miserly compared to the Motor City, whose operating deficit last year was more than $325 million. It would have been almost a billion dollars, but the city issued debt to cover the difference, trading short-term inconvenience for long-term penury. It is now out of cash and has no plans to pay the $100 million it will owe for operating expenses in the next four months. Nor does it plan to pay the $2 billion of its debt which will come due in the next five years.
Faced by rapidly increasing tax burdens and faltering services, Detroit residents have fled in droves. The city’s population has been halved over the past half-decade; those left behind are poorer, less well-equipped for the world of work, less well-motivated and far more in need of the paltry services that remain. They use far more of the city’s resources than can be maintained through taxes; the resulting deficit continues to press the stricken city, which can neither afford to serve, nor abandon them.
Detroit’s problems are compounded by those it has elected to govern it – people like Councilwoman JoAnn Watson, who opined after the presidential election that, since Detroit voted overwhelmingly for Obama, the President should send some money their way. “You ought to exercise some leadership on that,” the councilwomen scolded. “That’s what you do…”
That’s what it comes down to, after more than a decade of jiggering, riding the bond market, dissembling and playing three-card monte with the sub-prime debt market: the hopes of Detroit’s governing class are riding on “Obama money,” perhaps from his secret “stash.” Or more uncharitably, the transfer of large sums from the industrious to those whose only product is decay.
Councilwoman Watson has plenty of company: the announcement on Thursday that an “Emergency Manager” had been appointed to control the city’s finances was met with howls of protest and a massive, citywide traffic jam. Lawsuits are also pending.
Kevyn Orr, a well-known Washington, D.C. attorney appointed on Thursday last, is the city’s last gasp before bankruptcy, which he will probably be unable to fend off. Once there, an uncertain future awaits every element of Michigan’s most dysfunctional city. City contacts, regardless of vendor or service, will be rewritten or eliminated. Tenure, pensions, health care – it will all be on the table, with future city outlays being determined by income, regardless of the wishes of the inhabitants or the desires of the political class.
What has Detroit to tell us all? Nothing we don’t already know.
We cannot tax ourselves prosperous – and if we try, we will quickly discover the point at which increasing tax rates will shrink the tax base faster than it will raise income.
We cannot borrow beyond our means. If we do so, we will find ourselves in a hole that only gets deeper with each passing year.
One cannot expect more in wages and benefits than the value of that which one can produce; doing so will create disappointment, and insisting on more will eventually destroy the employers. Union blandishments to the contrary, there is a reason that autos are now built in Texas and Tennessee, and that even the very generous government bailout of two faltering car companies came with wage and benefits limits lower than those before the bailout.
One cannot ignore the laws of economics; like gravity, they continue to function even in the absence of attention paid, and will eventually reassert themselves.
Why do we ignore examples such as Detroit? Because their message is unpleasant. Because we don’t want to do the work we know is required to repair the damage Detroit – and a thousand similar problems across the country – presents. We know we should, but we are constantly reassured that no particular effort, no special sacrifices, are required – at least, from most of us. It’s a falsehood, but it makes us feel good.
For the moment. But like most opiates, it wears off.